Homeowners are taking more time to sell their homes. And that’s potentially good news for homebuyers who now have more bargaining power.
Mortgage rates are rising, with the 30-year fixed rate averaging 7.37% on Thursday, according to Mortgage News Daily.
For the average homebuyer, the monthly payment on that mortgage is up 50% from last year when mortgage rates were 3%, Redfin said.
The sharp rise in interest rates has stunted buyer demand, with existing home sales falling for the eighth straight month. The last time sales fell for that many consecutive months was in 2007.
So it makes sense that listings for sale aren’t moving as quickly as they have during the pandemic.
It’s currently taking eight more days for listings to go from sale to pending compared to last year, Zillow Z said in a report released Wednesday. The longer those homes stay on the market, the more “inspiring” it is for sellers to drop prices to attract more buyers, Zillow said.
To that end, 27.5% of listings in September had price cuts, Zillow added. Before the pandemic, only around 22% of listings saw price cuts.
“A less stressful experience for homebuyers is a silver lining in today’s market,” Jeff Tucker, senior economist at Zillow, told MarketWatch.
“For those who can afford it, the conditions have become significantly more buyer-friendly than last year. Less competition means home shoppers now have more time to consider their options to make sure they’re finding the best fit, less chance of getting caught up in a bidding war and potentially even being able to get a discount off the list price.” he added.
“Houses are taking twice as long to sell as they did in the spring,” a report by Redfin RDFN,
Sellers lower their prices to attract buyers, as shown in the chart below.
“Houses will eventually be sold, but it may take a few months and sellers need to meet buyers where they are,” Redfin’s Chen Zhao said.
“That means lower prices and negotiations, including things like giving buyers a loan to lower their mortgage rates and paying for home repairs,” Zhao added.
Homes for sale were on the market for 34 days, a full week longer than the time homes spent on the market a year ago, Redfin said. It’s also a big change from May this year, when homes sold in an average of 17 days.
As of mid-October, about 8% of homes for sale had a price drop to attract buyers, up from 4% a year ago, Redfin added.
The extension of the market duration follows the analyzes of other real estate companies.
Realtor.com also said homes were on the market a full week longer in October.
“For homeowners considering a sale, this means adding extra time to the process,” the report said. “It can mean a little more time for buyers to consider options.”
(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a News Corp subsidiary.)
Existing homes for sale stayed on the market for 19 days in September, slightly longer than the 16 days reported in August, the National Association of Realtors said Thursday.
Buyers’ fears about interest rates have caused home sellers to see their profits shrink, according to a report by ATTOM.
Profit margins on sales of average-priced single-family homes and condos in the U.S. fell 54.6%, according to a company report, as house prices fell for the first time in 3 years.
“Rapidly rising mortgage rates have not only resulted in fewer home sales, but also impacted home prices,” Rick Sharga, executive vice president of market intelligence at ATTOM, said in a statement.
The average home price fell about 3% from the second quarter to about $340,000, the company said.
The biggest drop in profits was in cities like Claremont-Lebanon, NH, San Francisco, Prescott, Arizona, and Barnstable, Mass.
And as mortgage rates continue to rise, it is “very likely that house prices will continue to fall in many markets in the coming months,” Sharga said.
“If the Federal Reserve’s goal was to slow down the housing market, they’ve done it spectacularly,” he added.
The other metric to keep track of closely is inventory — or in real estate lingo, monthly supply.
That number tells us how many months it would take for the current stock of homes on the market to sell given the current pace, NAR said.
In September, homes for sale spent about 3.2 months on the market, which while still less than the usual four or five months homes spent on the market pre-pandemic, is still a significant difference from the last two represents years.
In January 2022, listings for sale spent a record low of 1.6 months on the market, according to NAR data.
To be clear, although currently rising, the overall housing stock still remains low, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note.
People are sitting on their homes either because they want to keep their record-low mortgage rates or because they are afraid they won’t be able to sell them at a price they want. Sellers are “on strike,” as one real estate blogger put it.
About 86% of people with mortgages have interest rates below 5% and 24% below 3%, according to data on outstanding home mortgages from Federal Housing Finance Authority data. The data refer to June 30, 2022.
Realtor.com estimates new listings for sale are down 15% in September compared to a year ago. Redfin estimates that September’s listings were down 22% mom and 25% year over year. Zillow said listings were down 16% year over year in September.
And the fewer offers there are, the more difficult it becomes to bring prices down.
However, for the market to fully rebalance, prices need to fall “significantly,” Shepherdson said. He expects house prices to fall by 15% to 20% next year.
Do you have thoughts about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]